In a meeting with Wade Hansen (my co-trader here at Slingshot Trader), I noticed his Sanuk shoes. I immediately realized that if a boring guy like him was wearing them, then the trend must be over and it was time to short the company that makes them. Of course Deckers Outdoor (NASDAQ:DECK) also make the famed UGG boots, which have been a marque brand for them and the source of much of their profits over the last few years. However, that brand has been losing some of its cachet recently and margins are not what they used to be. They continue to go on sale at retailers this winter and that hasn’t been a good sign in the past.
Traders are still reasonably optimistic about the earnings numbers due on Feb. 28 and if we are just talking about the numbers then we agree. What we don’t think will happen is a renewed positive outlook. DECK has been climbing up a choppy “ascending wedge” pattern over the last several weeks and there is a small downside breakout that emerged yesterday. This might be a little early to call it but we feel comfortable timing our trade before investors start to dump the stock to avoid a negative earnings surprise like we have seen in the past. A downgrade from Wedbush seems to agree with our general sentiment.
Recommendation: Buy to open the DECK Mar 40 Puts (DECK130316P00040000) ahead of earnings.
John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.